Contractors' Protests Derail Sales Tax Compliance Bill

After several AGC members testified in Olympia and many more took the time to send 3600 emails to legislators in less than a week the so-called sales tax compliance bill was knocked off its fast track. Instead the Legislature passed an amended version of SB 6173 that retains the ability of construction businesses to purchase materials and subcontract services for resale without paying sales tax.

The message sent by contractors was heard by the Legislature said AGC Government Affairs Director Rick Slunaker. Backers of the original legislation trying to plug up holes in the budget didnt introduce the bill until very late in the legislative session thinking it would go through the process without being noticed. Fortunately AGC members took the time to let policymakers know that this was not a modest little bill - it was a complete overhaul of the industrys sales tax collection system and an undue burden on those who follow the rules.

AGCs lobbying team expressed appreciation for all those who contacted legislators particularly those who travelled to Olympia to testify at a moments notice. They were Darcy Kooiker Berntson Porter & Co.; Rick Hadley Quigg Brothers; Dave Rutherford Wade Perrow Construction; and Sydney Perrizo Acme Concrete.

The bill as introduced would have eliminated the use of Resale Certificates that exempt contractors from paying sales tax on purchases for most construction projects. It required contractors to pay sales tax up front and make a claim later for a credit from the State.

Sponsors of the bill maintained that $135 million in state and local sales taxes go unpaid due to abuses of the current collection system. AGC supports efforts to strengthen compliance - and suggested a variety of better options to the Legislature. The original bills attempt to recoup unpaid taxes would have severely penalized those who are already complying. AGC made the case that contractors would have had to implement complicated and costly tracking and accounting systems and that language in the bill was so vague that securing an appropriate tax credit was not a sure thing. Many contractors would have been forced to obtain financing to pay to pay sales tax up front greatly increasing the cost of projects - public as well as private.

Fortunately the House of Representatives rejected the Senate-passed bill and made changes that do not require upfront tax payments by contractors. The amended bill creates a new sellers permit in place of resale certificates. The Senate accepted the House version. In brief the legislation passed by the Legislature will require businesses to apply for the new sellers permit; businesses will not be able to purchase materials at wholesale without one. The permits will be issued by the Department of Revenue to companies after reviewing their business type and compliance history. The Department will have the ability to revoke permits in situations of improper use or significant failures to pay taxes.

In the case of construction all companies who now make use of the existing resale certificates and have a positive history of compliance will receive their initial sellers permit automatically which will be valid for one year.

Many of the details of the legislation will be ironed out in the rulemaking process. House Finance Committee Chair Rep. Ross Hunter (D-48 Medina) has committed to participate and to run legislation early in the 2010 legislative session if changes are needed. One of the things that AGC would like to see happen is to extend the permit length for contractors to two years and to have their renewal coincide with renewal of each companys contractors registration. Regardless AGC will be heavily involved as the new system must be up and running by January 1 2010. AGCs focus will be to ensure that adequate protections are put into place and to see that objective measures are maintained in implementing this new system.

Some questions remain and the legislation isnt perfect but the House version is light years better than what the Senate sent over to the House said Slunaker. Rep. Hunter and Republican members of the House Finance Committee Ed Orcutt (R-18 Kalama) and Cary Condotta (R-12 Wenatchee) were really helpful in fixing this bill and deserve our thanks he concluded.

The bill was adopted late on the last day of the Legislative Session. It awaits action by the Governor who has until May 19 to sign it into law.

For questions or comments about the bill contact Rick Slunaker at 360-352-5000.